Questor share tip: Sainsbury board changes are not enough to make it a buy

J Sainsbury, Britain's third biggest supermarket, on Monday announced a number
of boardroom changes designed to "drive its long-term growth strategy
and strengthen the leadership team".

7:00AM BST 22 Jun 2010

J Sainsbury

Sainsbury (J)

329.3p -2.4p

Questor says Hold

The main change is that Darren Shapland, its well-regarded finance director, is putting down his calculator to take on the role of development director. In his new role he will take on responsibility for plotting future strategy and overseeing the company's convenience stores and bank. He will be replaced as finance director by John Rogers, currently property director.

The retailer said that the moves are all about looking to the future and "getting ahead of the curve".

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Analysts say that Sainsbury's is a robust business with a clear strategy for growth. The key requirement as far as the City is concerned is for the supermarket to see through its existing growth plans – opening new space, increasing its non-food offer and growing its margins. Last summer Sainsbury's said that it will open 2.5m sq ft of extra space by March 2011, amounting to 7.5pc growth a year. Overseeing this ambitious expansion plan will be one of Mr Shapland's priorities.

The City also speculated that "management retention" could be behind the changes. The finance director's role at Marks & Spencer is up for grabs and Mr Shapland is among the most experienced retail FDs out there, having formerly performed the same role at Carpetright.

The fact that Sainsbury's is looking beyond its immediate plans was greeted as a good sign. It shows that the management is confident and on the front foot.

"These changes may help to see through the [growth] plans," said Clive Black, an analyst at Shore Capital.

In terms of Questor's advice about the shares, we have long rated them as a hold. We would reiterate that stance today.

One of the main reasons for our stance relates to Sainsbury's ownership structure.

The Qatar Investment Authority, which attempted a bid for the retailer in 2007, holds a 26pc stake in Sainsbury's. Long-term, some questions remain over what the Qataris will do with their stake, and until there is more clarity on this issue we would not recommend buying the shares. Many of the remaining shares are held by the Sainsbury's family.

Sainsbury's shares trade on a 2010/11 price earnings ratio of 13.3 times, which analysts say represents good value. However, the whole supermarket sector is having a tough time at the moment and, until there is further clarity on sales and outlook, we would hold off buying the shares.

There is also the wider strategic issue. Tesco, Sainsbury's long-standing rival, has run away with the supermarket prize in the UK. It is the only UK retailer that can properly claim to have a global footprint.

Sainsbury's is in far better shape than it was when Justin King, the chief executive, took over in 2004. Then, Sainsbury's was a basket case with a bust supply chain and no clear future strategy. This has all changed and it is now firing on all cylinders. However it still remains a UK-only player and we would recommend that Tesco remains the supermarket to buy.